ZB Financial Holdings Limited HY 2014 financial presentation

1

Unaudited Financial

Results For The 6

Months Ended 30

June 2014

- HY14 performance affected by 22% reduction in total income and provision for discontinued operations….

2

Income StatementHY14 HY13 $ %

Net Interest Income 9 593 461 10 616 008 (1 022 547) -10%

Charge for impairment (1 699 490) (157 739) (1 541 751) -977%

Net Reinsurance Income 1 727 007 1 492 280 234 728 16%

Net Assurance Income 2 188 018 2 358 097 (170 078) -7%

Non-Interest Income 15 048 967 20 288 789 (5 239 821) -26%

Net Income 26 857 963 34 597 434 (7 739 471) -22%

Operating Expenses (28 930 229) (29 326 053) 395 824 1%

(Loss) / Profit Before Tax (2 072 266) 5 271 381 (7 343 647) -139%

Transfer form / (to) Life Fund 453 235 (1 905 127) 2 358 362 124%

(Loss) / Profit After Tax (2 627 622) 2 209 432 (4 837 054) -219%

Change (y-o-y) • Total Revenue reduced by 22% largely as a

result of 25% reduction in lending income

• A culture of full disclosure and prudence in

assessing the credit book resulted in the

charge for loan Impairments increasing by

977%

• Insurance technical results remained flat (only

1% increase) with both life assurance and re-

insurance contributing at about the same level.

• $392.7 thousand impairment provision on

insurance debtors included in the net technical

result

• A marked reduction in non-funded income

largely pronounced by a $2.2m fair value loss

(HY13: profit of $1.6m)

• OPEX managed at almost same level as HY13

despite pressure.

(2.07)

(5) 5.27 0.23

(1) (2)

(0) (0)

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- Strong balance sheet growth despite market challenges….

3

• Total assets growth restricted to 4% as the Group adopted a deliberately cautious approach

to asset creation in response to amplified credit risk on the market. Greater focus was

placed on asset quality rather than quantity.

• Advances book increased by 4% with mortgage backed facilities having contributed a 49%

of the increase.

• Strong growth in the deposit book, at 6%, in a market fraught with internecine liquidity

challenges is a vindication on the Group’s risk management practices and also a reflection

of aggressive business mobilisation activities

HY14 $m FY13 $m

Total Assets 344.3 332.0 4%

Total Advances 137.2 131.7 4%

Total Deposits 231.3 218.6 6%

Shareholders' Funds 64.6 67.3 -4%

Life Assurance Funds 24.0 24.5 -2%

Total Advances Growth 4.1% -3.3% 226%

Total Deposits Growth 5.8% 0.9% 567%

Change %

- Ratios highlight strong inclination towards risk management and sustainability than short-term returns….

4

Returns HY14 HY13 Change %

Return on Equity -2% 1% -271%

Return on Assets 0% 2% -120%

Earnings per Share (0.01) 0.01 -200%

Net Assets per Share 0.37 0.38 -4%

Efficiency

Non-Interest income Ratio 71% 70% 1%

Cost to Income Ratio 108% 85% -27%

• Negative returns and efficiency outturn are a reflection of the short-term misalignment of revenues against

an entrenched infrastructure base – amplifies the case for a review of the business model in order to

optimise returns out of a mature operating platform.

• The increase in the NPL ratio is a result of residual clean-up activities on the credit book; largely constituted

by credit granted in the nascent stages of dollarisation when businesses were generally buoyant about their

prospects - a macro level crisis with some learning points for the Group.

• Liquidity ratios and the level of cash cover in the Group, besides meeting regulatory requirements, speak of

long term sustainability.

• Alternative capital would be an added advantage notwithstanding the high CAR achieved as it would

stimulate further growth .

Asset Quality HY14 FY13 Change %

NPL ratio 22% 18% -28%

Liquidity Ratio

Loans to Deposit Ratio 59% 60% -2%

Liquidity Ratio 40% 39% 3%

Cash cover 32% 32% 0%

Capital Adequacy Ratio

Tier 1 Capital Ratio 19% 20% -7%

Total Capital Ratio 19% 20% -7%

- Improved revenue performance expected in the second half of FY14….

5

14

29 29 35

27

26

34 40 29

40

63

69

63

0

10

20

30

40

50

60

70

80

FY10 FY11 FY12 FY13 HY14

Mill

ion

s

Total Income Trend

1st Half 2nd Half Total income

• Revenue performance has always been

stronger in the second half and FY14 is

expected to be no exception. Sources will

include:-

• Increased customer accounts and

transaction volumes (fees)

• New products

• Increased customer reach leveraging

on technology

• Strategic and operational alliances

with key customers

• $3.3m in interest credits was lost to

interest reservation for HY14; expected

partial release to income statement in

future periods as collections on defaulting

loans happen.

- Softening interest margins as credit absorption weakens….

6

1.1%

1.9%

1.7%

1.4% 1.3%

0.7% 0.6%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

FY09 FY10 FY11 FY12 FY13 HY13 HY14

Net Interest Margin • Interest margins continued to

soften shedding 0.1 basis

points to 0.6% at HY14.

• The downward slope in the

trend-line since FY09 is

consistent with general

movement in interest rates on

the market (natural price

correction since dollarisation).

• Term deposits constitute a

significant portion of the

funding and contribute a

material interest cost.

- Non interest income continues to contribute more to Group earnings….

7

• Non interest income has

contributed 71% to HY14

• A strong customer base which

has been on the increase (3%

increase in banking accounts

from 31 December 2013 to 30

June 2014), key in commission

revenue growth

• Spasmodic fair value outturn has

caused total income volatility;

these are not realised losses.

• The Group remains watchful of

opportunities to exploit value out

of the investment portfolio.

8

23 20

25 20

21

20

27

17

0

71%

68%

69%

66%

71%

63%

64%

65%

66%

67%

68%

69%

70%

71%

72%

0

5

10

15

20

25

30

35

40

45

50

FY10 FY11 FY12 FY13 HY14

Mill

ion

s

Non-Interest Income Trend

1st Half 2nd Half Non-Interest Income Ratio

- Growth experienced in major non interest income lines that are within the Group’s control….

8

•Commissions and fees which

are the major contributor to non

interest income contributed 77%

in HY14 against 63% in HY13

•Other major lines have also

improved when compared to last

year HY13, as the Group pushes

for new business in reinsurance

and life assurance business

sectors

63%

77%

6%

9%

10%

11%

7%

-11%

14%

15%

-20%

0%

20%

40%

60%

80%

100%

120%

HY13 HY14

Commissions and fees Net Reinsurance Income

Net Life Assurance Income Fair Value Adjustments

Other Income

- Growth in Insurance Underwriting income led by reinsurance activities….

9

• Net underwriting results increased by 2%

• Re-insurance technical result increased

by 16% on the back increased treaty

participation and more facultative

business as underwriting capacity

increased.

• Re-insurance underwriting margin closed

at 11%, a comfortable level for sustained

profits

• New markets in the region are being

explored

• Life Assurance technical result decreased

by 7% despite a 13% increase in Gross

premium.

• Policy holder benefits increased by an

aggregate 50%

13%

11%

11%

11%

12%

12%

12%

12%

12%

13%

13%

-

,2

,4

,6

,8

,10

,12

,14

,16

HY14 HY13

Mill

ion

s

Net Reinsurance Income

Gross premiums

Net reinsurance income

Net reinsurance incometo gross premiums

53%

65%

0%

10%

20%

30%

40%

50%

60%

70%

-

,1

,1

,2

,2

,3

,3

,4

,4

,5

HY14 HY13

Mill

ion

s

Net Assurance Income

Gross premiums

Net assurance income

Net assurance income togross premiums

- Stringent cost control measures bear fruit as costs containment is achieved ….

10

14.0

19.0

27.4

29.3

28.9

101%

65%

93%

85%

108%

0%

20%

40%

60%

80%

100%

120%

0

5

10

15

20

25

30

35

HY10 HY11 HY12 HY13 HY14

Mill

ion

s

Operating Expenses Trend

Total Expenditure Cost to Income Ratio

• OPEX reduced by 1% in HY14 compared to HY13.

• In nominal terms, the OPEX level remains

competitive in relation to size of operations despite

a 108% cost efficiency ratio.

• Several measures to increase operational

efficiencies are underway– the impact of these

measures are expected in the second half to

medium term. • Business model review has seen unviable and non-

core businesses (ZB Asset Management, ZB

Securities, In-sourced Security and Cleaning

Services) being discontinued.

• Staff numbers have been reduced from +1.6k at 31

Dec 2013 to +1.2k at 30 Jun 2014

• Paperless transactions in banking operations to

reduce cost.

• Review of space utilisation in progress and partially

implemented.

• A refresh of technologies and optimisation of current

services to reduce service costs.

- Mixed performance by business units….

12

-2.63

-0.32

-3.61

0.85 0.46

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

Ban

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Oth

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egm

ents

To

tal

Mill

ion

s

Business Unit Contribution to PAT

-2.63 -1.38

-,1.25

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

Continuingoperations

Discontinuedoperations

Total

Mill

ion

s

Continuing vs Discontinued Operations Results

- Key service channels platform for sustainable growth and profitability….

Branches are generally profitable

• Only 5 out of 66 Branches not making a profit

• These are largely new branches still in their infancy and still on track to achieve break-even in target period

• 2 Branches closed as a result of constrained performance

Usage of Electronic Channels on the

increase

•ATM Card usage increased by 14%

•Transactions count on POS and ATM increased by 48%

•Cards in circulation increased by 27% to 264k

•In-branch POS usage increased by 104% on withdrawals and 562% on deposits transacting +$157 million.

CRM promoting customer loyalty and

growth

• 14% growth in payment transaction count on Group platforms

• 16% increase by value

• +2 400 new accounts opened for informal traders

Business partnerships enhancing customer

experience

• Facilitating integrated payments for an increasing number of business partners

• Prepaid electricity vouchers vending a key addition in the period under review

• Agency banking roll-out for full banking services underway (4 already launched)

13

- Group holds a substantial investment in properties ….

14

21%

5%

41%

7%

4%

1% 1%

5%

15%

Composition of Total Assets HY14

Cash and shortterm funds

Money marketinvestments

Mortgages andother advances

Investmentsecurities

Investment inassociates

Other assets

Premium debtors

Investmentproperties

Property andequipment

+$9 million in funding was mobilized through property backed structures, inclusive of the $5 million Agro-bills

- Limited growth in advances lines due to tight credit risk control….

15

• 4% Advances growth from December

2013 position.

• Mortgage facilities increased marginally

from 7% to 8% and are set to grow as

more property development is

undertaken.

• Finance leases remained low at 3%

,24

,77

,118

,136 ,132

,137 228%

53%

16%

-3% 4%

-50%

0%

50%

100%

150%

200%

250%

-

,20

,40

,60

,80

,100

,120

,140

,160

FY09 FY10 FY11 FY12 FY13 HY14

Mill

ion

s

Total Advances Trend and Growth

Total Advances Trend Loans Growth

- No major changes to the loan sectoral distribution between HY14 and FY13….

16

Private 22%

Agriculture 13%

Mining 20%

Manufacturing

13%

Distribution

7%

Contruction

2%

Transport 2%

Services 12%

Financial 1%

Other 8%

FY13

Private 24%

Agriculture 13%

Mining 19%

Manufacturing 11%

Distribution

7%

Contruction

1%

Transport 1%

Services 13%

Financial 4%

Other 7%

HY14

-Concerted effort underway to improve loan quality with NPLs having increased from 18% to 22%....

17

1

4

9

27

30

41

2%

5%

6%

17% 18%

22%

0%

5%

10%

15%

20%

25%

0

5

10

15

20

25

30

35

40

45


Mill

ion

s

Non-performing Loans

Non-performing Loans NPL Ratio

• Deterioration in NPL ratio partly a result of the low growth in the aggregate loan book

• Significant portion of NPLs are in the Manufacturing Sector

Private 16%

Agriculture 21%

Mining 16%

Manufacturing 31%

Distribution 12%

Construction 1%

Transport 0%

Services 2% Communication

1%

SECTORAL ANALYSIS OF NON-PERFORMING LOANS

-Adequate resources set aside from capital to cater for NPLs....

18

• Security cover on the NPLs

amount to 66% whilst provisions

(including interest reservation)

amount to 43%, giving a total cover

of 109%

0 1

3

7 8

12 3.42

5.75 3.62

5.18

0.93

0.36

0.51

0.65

44%

63%

87%

47% 42%

43%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

2

4

6

8

10

12

14

16

18

20


Mill

ion

s

Interest Reserves Specific provision

Portfolio provision Total Provisions

- No major changes in the funding structure of Group operations between FY13 and HY14…

19

22%

71%

1%

5% 1%

Composition of Total Liabilities / Equity FY13

Total equity

Deposits andother accounts

Short-termborrowings

Trade and otherpayables

Current taxliabilities

Deferred taxliabilities

20%

73%

2%

4% 1%

Composition of Liabilities / Equity HY14

Total equity

Deposits andother accounts

Short-termborrowings

Trade and otherpayables

Current taxliabilities

Deferred taxliabilities

- Deposit portfolio diversification good for management of concentration risk….

20

19%

3% 1%

4%

3%

1%

1%

17%

37%

14%

Deposits Composition by Customer Type FY13

Individuals

Agriculture

Mining

Manufacturing

Distribution

Contruction

Transport

Services

Financial

Other

20%

3% 1%

11%

3%

1%

1%

24%

23%

13%

Deposits Composition By Customer Type HY14

Individuals

Agriculture

Mining

Manufacturing

Distribution

Contruction

Transport

Services

Financial

Other

• Financial sector deposits reduced from 37% to 23%

- Liquidity management has been the hallmark of our success in a volatile environment….

21

• Liquidity ratio is above the minimum

pegged at 30%.

• Well balanced Loans to Deposits

Ratio trend, averaging 61%.

• Ratios show a commitment to the

provision of uninterrupted service

delivery to our customers.

• Liquidity is generally an area of

major concern on the market

45%

67%

70%

63% 61%

59% 50%

37%

34%

38%

39% 40%

0%

10%

20%

30%

40%

50%

60%

70%

80%


Loans to Deposits Ratio Trend Liquidity Ratio Trend

- Capital management remains a key focus area….

22

34%

17% 15% 14% 13% 13%

68%

54% 46%

45% 43%

45%

0%

20%

40%

60%

80%

100%

120%


Capital Adequacy Ratio Trend

Capital Adequacy Ratio for ZB Building Society

Capital Adequacy Ratio for ZB Bank Limited

• The minimum capital adequacy ratio

is 12%

• Enhancement of capital by focusing

on improving asset quality and

income generation capacity.

23

-Outlook Period looks bright….

But pain-full strategies to be implemented to realign operations

• Further cost optimisation through a right-sizing exercise to be undertaken.

• Implementation of measures will lead to front-loaded costs which will affect short-term results.

•Close scrutiny on non-viable operations and channels which may lead to further closures or re-orientation.

New revenue opportunities to be exploited

•Through partnerships with stakeholders.

• Development of new markets (e.g. Mozambique for ZB Re and Agency Banking for ZB Bank).

•Aggressive mobilisation of funding (Increase investible paper following on the success of the $5m Agro-bill)

• Group led property development thrust.

Technology to play a key part in the service delivery

•Capital expenditure in the technology space to increase in the short-term.

•A refresh of front-facing technologies already underway.

• Increased profit contribution to be led by electronic channels.

“A value driven and growth oriented leadership culture adopted by the Group is expected to

stimulate the expansion of revenue opportunities which is anchored on increased

operational efficiencies”

24

-Parting words….

Thank you

25

Data Card - ZB Bank Limited

26

Income statement HY14 HY13 Change %

Total Income 20 581 134 22 395 687 -8%

Total Expenditure 21 385 558 20 305 556 -5%

Charge for impairment 1 586 171 389 300 -307%

Profit Before Tax (804 424) 2 090 131 -138%

Profit After Tax (529 057) 1 371 114 -139%

Financial position HY14 FY13 Change %

Total Assets 282 636 094 257 376 562 10%

Total Advances 134 002 997 132 198 843 1%

Total Deposits 234 985 022 211 111 402 11%

Shareholders' Funds 35 605 772 36 134 829 -1%

Key ratios HY14 HY13 Change %




Data Card - ZB Building Society

27


Total Income 3 695 168 3 829 807 -4%


Charge for impairment (113 184) 245 202 -146%

Profit Before Tax 243 725 995 705 -76%

Profit After Tax 242 507 991 295 -76%


Total Assets 41 690 824 36 779 647 13%

Total Advances 16 766 637 12 651 218 33%

Total Deposits 22 676 417 18 395 691 23%

Shareholders' Funds 16 804 913 16 562 406 1%


Return on Equity 1% 5% -73%



Data Card - ZB Life Assurance

28


Total Income (1 725 489) 4 547 725 -138%


Profit Before Tax (3 740 982) 291 820 -1382%

Profit After Tax (3 605 486) 129 098 -2893%


Total Assets 28 213 849 32 483 245 -13%

Money Market Investments 2 302 614 2 751 511 -16%

Investment Properties 3 433 005 3 433 005 0%

Life Assurance Fund 24 014 286 24 467 521 -2%

Shareholders' Funds 2 433 113 6 038 599 -60%



Return on Assets -12% 1% -1477%

Cost to Income Ratio -143% 52% -377%

Data Card -ZB Reinsurance

29


Total Income 2 193 806 2 099 160 5%

Total Expenditure 1 060 217 1 120 958 5%

Profit Before Tax 1 133 589 978 202 16%

Profit After Tax 845 392 791 929 7%


Total Assets 12 818 888 12 170 206 5%

Insurance Receivables 2 030 833 2 065 822 -2%

Money Market Investments 7 420 000 7 100 000 5%

Investment Securities 2 003 312 1 775 286 13%

Shareholders' Funds 7 811 815 6 966 423 12%


Return on Equity 15% 14% 9%

Return on Assets 9% 8% 13%

Cost to Income Ratio 48% 53% 9%

Data Card - Investment Banking

30


Total Income 645 603 1 081 324 -40%


Profit Before Tax (918 718) 16 859 -5549%

Profit After Tax (1 314 678) 131 548 -1099%


Total Assets 1 832 080 2 929 513 -37%

Money Market Investments 411 305 475 484 -13%

Investment Securities 404 761 961 574 -58%

Shareholders' Funds 613 781 1 928 459 -68%



Return on Assets -39% 1% -6805%


Investor Relations

ZB Financial Holdings Limited HY 2014 financial presentation